AP Macro Formula sheet
GDP
GDP = total value of all final goods and services produced by an economy in a given year
GDP = C + I + G + (X-M) or C + I + G + Xn
Not counted in GDP are illegal activities, government transfer payments (social security, welfare, veterans benefits, etc.) sale of used goods, financial payments (bonds, stocks)
GDP is also refereed to as Output, or Y
GDP per Capita = GDP/population
Real GDP (adjusted for inflation)
Nominal GDP = current dollars
Nominal – Inflation = Real
GDP Price index (deflator) = nominal GDP x 100
Real GDP
Real GDP = ______nominal ______
price index (deflator) in hundredths
Price index = market basket in a specific year x 100
Market basket in a base year
Consumer Price Index
CPI = Recent market basket in a specific year
Market basket in a base year x 100
Rate of Inflation = Current CPI – Previous CPI
Previous CPI x 100
Marginal Propensity to Consume and Save
MPC = ∆C/∆DIMPS = ∆S/∆DI or 1-mpc
MPC + MPS = 1
APC = C/DI APS = S/DI
Simple spending multiplier
1/1-mpcor 1/mps
Government multiplier 1/1-mpc or 1/mps
Tax multiplier = -MPC/MPS or make it 1 less than the multiplier and negative
SPENDING MULTIPLIER
MPC MULTIPLIER
.5 = 2X
.6 = 2.5 X
.75 = 4X
.8 = 5X
.9 = 10X
∆GDP = change in spending (C, I, or G) x the Multiplier
∆GDP = change in taxes (C, I, or G) x the Tax Multiplier (always negative)
An increase in taxes change is a positive number x negative multipiier = decrease in GDP
Shift in AE will be down.
A decrease in taxes = change is a negative number x negative multiplier = increase in GDP
Shift in AE will be up.
***Spending from a tax break is less then spending because we spend less of our tax break.
Unemployment Rate
Civilian Labor Force = Unemployed + Employed
UR = number of unemployed x 100
Labor Force
LFPR = Civilian labor force
Civilian (non- institutionalized ) Adult population x 100
ER = Employed
Civilian Non – institutionalized Population x 100
U and E have different denominators and cannot be added together with the expectation of getting 100 percent.
The Civilian Non-Institutionalized Population is everyone over the age of 16, not in the military or other institution (such as a mental hospital or prison)
To be considered unemployed a person must be actively looking for work in the past 4 weeks.
Natural Unemployment Rate –varies over time and is the amount of unemployment due to structural and frictional unemployment
Full Employment is w hen the economy is operating at its natural rate of unemployment, but never 100 percent.
Types of Unemployment
Cyclical – due to a recession, downturn in the economy
Structural – skills of worker does not match needs of the economy
Frictional – voluntary between jobs, looking for first job
Seasonal – seasonal employment
Money Multiplier
1/rr x ∆Fresh deposits of money = ∆Money supply
10% rr = 10x
5% rr = 20x
20% rr = 5x
15% rr = 6.67 x
What is money
M1 = currency, checkable deposits, travelers checks
M2 = all of M1 and CDs lower than 100,000
M3 = all of M2 and CDs above 100,000
Velocity of Money
Velocity is number of times money is used in the economy
MV = P * Q
M = money supply
V = velocity of money
P = Overall price level
Q = Quantity or Real GDP
PL * Real GDP = Nominal GDP